Question

Rio Coffee Shoppe sells two coffee drinks, a regular coffee and a latte. The two drinks have the following prices and cost characteristics: Regular Coffee Latte Sales price (per cup) $ 1.50 $ 2.60 Variable costs (per cup) 0.60 1.30 The monthly fixed costs at Rio are $7,140. Based on experience, the manager at Rio knows that the store sells 70 percent regular coffee and 30 percent lattes. Required: How many cups of regular coffee and lattes must Rio sell every month to break even?

Answer 1

	Regular Coffee	Latte
Selling Price	1.5	2.6
Variable costs	0.6	1.3
Contribution	0.9	1.3
Store sells for every 7 cups of regular coffee , it sells 3 cups of latte
Contribution per sale mix	=$0.9X7+$1.3X3
	=$10.2	per sale mix
Fixed costs =	$7140
Break even sale mix = Fixed costs/Contribution per sale mix
=7,140/10.2
= 700 Cups of Sale mix
Break even regular coffee cups = 700 X7 = 4,900 Cups
Break even Latte cups = 700 X3 = 2,100 Cups